28 May 2013

FESE members support the draft OECD long-term financing principles and make some recommendations

FESE members support all of the principles outlined by the OECD in its report ‘Draft high‐level principles of long‐term investment financing by institutional investors’. In particular, FESE recommends the following:

• Regulators should take steps to repair the local ecosystem, taking actions that would help revive local brokers so they can help smaller companies access capital markets.
• Future OECD policy should further strengthen investor protection, which during the financial was demonstrated to be weak in unregulated parts of the market, and safeguard investor confidence in markets. Improving investor protection is needed to help increase confidence in markets. FESE also recommends increasing greater possibilities of certain types of investors accessing markets directly.
• Public funds should be used not only to help venture capital funds investing in companies but also help local companies access public capital markets. The European Commission is already committed to providing funds for private funds such as private equity and venture capital funds that invest in

Small and Medium Enterprises (SMEs)

• Focusing on private equity only will be too narrow, SMEs need both private equity capital and public markets. We recommend that the funding for venture capital should only focus on early phase SMEs. The EU should allocate some funding to make SME IPOs more attractive to private investors. Public funds could act as a domestic anchor for investors by funding a ‘fund of listed SMEs’, incentivising other domestic and foreign funds to join in.
• Bond markets and securitisation should be harmonised further to create additional liquid instruments that can help channel long‐term funds to companies.
• Regulatory incentives that distort investor decisions in favour of some asset classes should be removed, such as tax/balance sheet incentive to issue bonds.
• Tax incentives that distort investor decisions in favour of some asset classes should be removed. Moreover, positive tax incentives are needed, in particular for SMEs. If Europe wants more investors to look at SMEs, incentives are needed, and tax incentives are among the most effective. Incentives on taxation for the smaller and most dynamic companies will be a key instrument.

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